Savanna Completes TDS-3000 Retrofit Program and Outlines 2013

Savanna Completes TDS-3000 Retrofit Program and Outlines 2013 Capital
Program 
CALGARY, ALBERTA -- (Marketwire) -- 12/06/12 -- Savanna Energy
Services Corp. (TSX:SVY) ("Savanna" or "the Company") is pleased to
announce the completion of its drilling rig retrofit program. This
program involved the extensive retrofit of 15 CT-1500(TM) shallow
hybrid drilling rigs to TDS-3000(TM) long reach conventional rigs.
The last of the 15 rigs was commissioned in November and is currently
in the field. Acceptance of the retrofitted platform has met all of
Savanna's targeted capital, operating and cash flow expectations, and
has enhanced the Company's ability to service the Canadian and United
States long reach horizontal drilling markets. Currently, 12 of the
TDS-3000 rigs operate in Canada, while the remainder are working in
the United States. Savanna will average 8 operating TDS-3000 rigs in
2012 and operate all 15 rigs throughout 2013. 
Drilling Rig Strategy 
In anticipation of completing the TDS-3000 retrofit program Savanna
has developed several new drilling rig designs to support future
expansion. All the designs enhance the drilling depth focus of
Savanna and incorporate highly-mobile, fully-automated AC platforms.
These rigs are ideally suited for the current North American drilling
market. Importantly, they position Savanna to capitalize on evolving
downhole technologies that are increasingly reliant on AC control and
capacity driving the drilling equipment, particularly on deeper
double and triple capacity rigs. To sustain our long-term growth,
Savanna is committed to providing these technologies on all of our
new rigs in addition to upgrading our current fleet to improve their
safety and capacity. 
Asset Expansion in Rentals 
The TDS-3000 program has absorbed a significant portion of Savanna's
growth capital over the past 2 years, and we anticipate demonstrating
the rigs' economic returns in the coming quarters. The Company is now
focused on expanding our rental equipment and workover businesses in
Canada, the United States and Australia. We recently acquired 208
oilfield accommodation buildings from a private company for $14
million in cash, and also taken delivery of 20 newly manufactured
accommodation units for an additional $3 million cash. Virtually all 
of the accommodation units are booked for Q1, 2013, and it is our
expectation the addition of this equipment will enhance the
marketability of our drilling rigs and other rental assets. These
expenditures are incremental to our previously announced capital plan
for 2012, and brings Savanna's Q4 capital expenditure total to
approximately $41 million.  
Australia 
The last of Savanna's initial 8 rig commitment has landed in
Australia. This brings the rig complement in the region to 4 drilling
and 4 workover rigs. All but one of these rigs is under term
contract. The 4th drilling rig, which was previously on a short-term,
16-well test contract, has now been dedicated to a multi-year
agreement with the same customer. The operating environment in
Australia has improved over the past few months, and Savanna
anticipates better rig utilization in 2013. Demand for drilling and
workover equipment in the region continues to increase, and new
customer tender activity is accelerating. 
2013 Capex 
Consistent with 2012, Savanna is initiating a conservative 2013
capital expenditure plan. While commitments for Q1, 2013 are
currently comparable to 2012, we remain cautious about North American
activity levels for the remainder of 2013. We believe our Australian
and United States expansions, with their strong contract positions,
should support solid activity levels for 2013. In Canada, both PSAC
(Petroleum Services Association of Canada) and the CAODC (Canadian
Association of Oilwell Drilling Contractors) are predicting 2013
activity levels equal to or lower than 2012. Balancing this cautious
outlook with strong commitments in Canada in Q1, and solid demand in
Australia and the United States, Savanna has established the
following conservative capital budget for 2013: 


 
                                                    $ (000's)
                                                   ----------
Maintenance capital, recertification's and upgrades    40,000
Spare equipment and drillpipe                          20,000
Long lead items for drilling rigs                      26,000
Workover rigs for North Dakota (3)                      4,000
Expansion capital for rentals and oilfield services    17,000
                                                   ----------
                                                      107,000
                                                   ----------

 
The details regarding these capital items include the following: 
Maintenance, Recertification and Upgrades 
Savanna operates a modern drilling and workover fleet. In addition to
required maintenance and recertification expenses, Savanna has been
investing capital to enhance the capacity of some of its drilling
rigs to satisfy market demand. Over the past 3 years, Savanna has
continually upgraded its fleet of deeper drilling rigs, enabling them
to compete in the horizontal drilling markets for wells with total
measured depth in excess of 5000 metres. This process has included
enhancing the AC capabilities of our fleet. At $40 million, our
maintenance expenses are below the industry average, reflecting the
age and quality of Savanna's fleet. 
Spare Equipment and Drillpipe 
High utilization of our drilling fleet in recent years has increased
the wear and tear on our drillpipe. Additionally, our expanded and
more geographically dispersed fleet has increased our requirement for
spare equipment to ensure uninterrupted operations. While Savanna
boasts a highly homogenous fleet, proximity to spare equipment is
essential for efficient operations. To address these factors, Savanna
has approved $20 million for drillpipe and spare equipment. 
Long Lead Items 
Savanna is focused on adding ultra-deep double and triple rigs to our
drilling fleet. Our investment in unique AC rig platforms for this
market is expected to form the foundation for our organic growth for
the next several years. Our primary focus is North America, with a
bias towards our existing U.S. operating areas. Additionally, we
anticipate further demand for both drilling and workover rigs from
Australia but we will only add to our fleet against contracts.
Fortunately, based on Savanna's drive toward utilizing consistent key
components in our deeper rigs, the breadth of long lead items is
reasonably narrow. By ordering long lead items ahead of manufacture
we can reduce customer delivery times. Savanna is currently pursuing
double and triple contracts to support the manufacture of drilling
rigs during 2013 and has approved a budget of $26 million for long
lead items in 2013.  
North Dakota Workover Rigs 
Savanna has achieved strong operating results in our North Dakota
workover operations over the past 3 years. This success has been
driven by the high level of completion activity for new wells, and
increasingly by maintenance of existing production. In light of the
increased focus on oil-based activity in the region, the level of
maintenance on existing wells continues to grow. This growth matches
Savanna's long term expectation for all oil-focused areas throughout
North America, with the earlier increase in drilling in North Dakota
simply providing support for this market growth outlook. Our
expectations for a similar trend in Canada remain high. It is
expected that increases in workover activity will cushion our
business against temporary slowdowns in drilling activity. In 2013
Savanna has committed to build an additional 3 workover rigs for
North Dakota with an aggregate budget of $4 million. This build
program will be expanded if market demand dictates.  
Rentals and Oilfield Services  
Savanna's strategy is expected to be the expansion of our rental and
support operations in every geographic region in which the Company
operates in support of our drilling and workover activities. The $20
million in capital approved for 2013 for expansion of rental and
oilfield services is expected to be directed primarily at Canada and
Australia, however, the recent acquisition of accommodation buildings
provides asset expansion in both Canada and the United States. Rental
asset expansion is expected to continue to be focused on assets
running in tandem with our drilling and workover equipment, and be
primarily directed to surface support and well control equipment.
This expansion capital is directly supportive of Savanna's strategy
to capitalize on our existing drilling and workover sales, field and
operating infrastructure. 
2013 Market Expectations 
With the exception of the long lead items for drilling rigs and the 3
workover rigs for North Dakota, the remaining capital program is
scalable to market activity. In Canada, both PSAC and the CAODC are
forecasting 2013 activity levels to be slightly lower than 2012.
Savanna is still dependent on activity levels in Canada to drive our
overall results. With the completion of our TDS-3000 retrofit
program, Savanna believes it now has a more marketable drilling rig
fleet. Beyond Q1, 2013 the level of activity in Canada is less
certain, but Savanna believes our retrofitted fleet is well
positioned to capitalize on whatever activity arises. In the United
States, Savanna has over 90% of its rigs under term contract, which
should provide a cushion against further drilling market
deterioration. Additionally, Savanna's U.S. fleet is positioned in
markets where activity is expected to remain stronger. Finally,
Savanna has established sufficient scale in Australia to take
advantage of the expected sharp increase of activity levels in that
country. With 8 rigs operating in the country, and 7 under contract,
Savanna is positioned to generate strong EBIDTA returns from this
division.  
Savanna is committed to increasing its drilling rig depth and
operating capacity in order to align our service offerings with our
customers' future needs. The Company will design, commission and
operate equipment aligned to our position as a sustainable,
profitable oilfield service provider. In the context of an uncertain
North American market for the drilling and workover services, we have
approved a capital budget providing for growth and expansion in our
key markets, recognizing the potential risks to activity levels in
the near term. Our capital plans reflect Savanna's commitment to
sustain and grow our current monthly dividend. The Board of Directors
reviews our dividend policy quarterly, and is satisfied with current
dividend levels. 
Savanna is a Canadian-based drilling and oilfield services provider
with operations in Canada, the United States and Australia, focused
on providing fit for purpose equipment and technologies.  
Cautionary Statement Regarding Forward-Looking Information and
Statements 
Certain statements and information contained in this press release
may constitute forward-looking information within the meaning of
applicable Canadian securities legislation and "forward-looking
statements" within the meaning of the United States Private
Securities Litigation Reform Act of 1995. The use of any of the words
"expect", "anticipate", "continue", "estimate", "objective",
"ongoing", "may", "will", "project", "should", "believe", "plans",
"intends", "might" and similar expressions are intended to identify
forward-looking information or statements. In particular, but without
limiting the foregoing, this press release contains forward-looking
information and statements pertaining to the following: the
demonstration of TDS-3000 economic returns in 2013; that evolving
downhole technologies are increasingly reliant on AC control; the
effectiveness of new technology on our rigs and the economic returns
on same; the addition of rental equipment and accommodation units
enhancing the marketability of drilling rigs; anticipated increased
rig utilization in Australia; expected activity levels in Australia,
the U.S. and Canada in 2013; the securing of new contracts with
economics supporting new rig builds in 2013; the continued
maintenance of existing wells in North Dakota and the increase of
workover activity in the area going forward; and the sustainability
of the Company's current monthly dividend in the future.  
These statements are based on certain assumptions and analysis made
by Savanna in light of its experience as well as other factors it
believes are appropriate in the circumstances including, without
limitation: the status of current negotiations with its customers,
the progress of Savanna's current capital projects and current
customer advice on deployment for specific customer programs.
However, whether actual results or events will conform to Savanna's
expectations and predictions is subject to a number of known and
unknown risks and uncertainties which could cause actual results and
events to differ materially from Savanna's expectations including,
without limitation: fluctuations in the price and demand for oil and
natural gas; fluctuations in the level of oil and natural gas
exploration and development activities; fluctuations in the demand
for well servicing and contract drilling; the effects of weather
conditions on operations and facilities; the existence of competitive
operating risks inherent in well servicing and contract drilling;
general economic, market or business conditions; changes in laws or
regulations, including taxation, environmental and currency
regulations; the lack of availability of qualified personnel or
management; the other risk factors set forth under the heading "Risks
and Uncertainties" in Savanna's Annual Report and under the heading
"Risk Factors" in Savanna's Annual Information Form; and other
unforeseen conditions.  
In addition, the amount of future cash dividends, if any, will be
subject to the discretion of the Board of Directors and may vary
depending on a variety of factors, including fluctuations in
operating costs and earnings, working capital and capital expenditure
requirements, debt service requirements, foreign exchange rates, the
satisfaction of solvency tests imposed by the Business Corporations
Act (Alberta) for the declaration and payment of dividends and other
conditions existing from time to time. 
All of the forward-looking information and statements made in this
press release are qualified by this cautionary statement and there
can be no assurance that the actual results or events anticipated by
Savanna will be realized or, even if substantially realized, that
they will have the expected effects on Savanna or its business or
operations. Except as may be required by law, Savanna assumes no
obligation to update publicly any such forward looking information
and statements, whether as a result of new information, future
events, or otherwise. 
Included in this press release is an estimate of Savanna's 2013
capital expenditure plan. To the extent such estimate constitutes
future oriented financial information or a financial outlook (as
defined by applicable securities legislation), such future oriented
financial information or financial outlook was approved by management
on December 5, 2012 and is included herein to provide readers with an
understanding of the Company's anticipated capital expenditures for
2013. Readers are cautioned that the information may not be
appropriate for other purpose.
Contacts:
Savanna Energy Services Corp.
Ken Mullen
President and CEO
(403) 503-9990
(403) 267-6749 (FAX) 
Savanna Energy Services Corp.
Darcy Draudson
Vice-President, Finance and CFO
(403) 503-9990
(403) 267-6749 (FAX)
www.savannaenergy.com